Germany: Increased Scrutiny on FDI

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In summary

From a practitioner’s standpoint, this article provides insight into the merger control regime in Germany. It covers jurisdictional, procedural and substantive issues, and highlights important legislative changes as well as recent developments at the enforcement level.

Discussion points

  • Transaction value threshold
  • Notification order as novel investigation instrument
  • The treatment of de minimis markets
  • Foreign direct investment screening

Referenced in this article

  • 10th amendment to the Act against Restraints of Competition
  • Federal Cartel Office
  • Ministry for Economic Affairs and Energy
  • EU Foreign Investment Screening Regulation


In 2020, the Federal Cartel Office (FCO) examined approximately 1,200 concentrations, down from approximately 1,400 notifications in 2019 but still a rather high number in view of the strong economic impact of the covid-19 pandemic. Just seven cases underwent an in-depth review (Phase II). Of those cases, none were ultimately prohibited: five were cleared (two with and three without conditions and obligations) while the remaining two cases were not decided in 2020.

However, in three further Phase II cases, the parties withdrew their notification after the FCO had summarised its serious competition concerns in a statement of objections. To pull (and refile) is not unusual in situations where the originally notified transaction has no realistic chance of being approved within the remaining review period, or only subject to remedies that are not palatable to the parties.

For a number of years, the FCO considered the number of competitively unproblematic transactions subject to notification in Germany to be too high. At the same time, it repeatedly voiced concerns that it was unable to review certain transactions, in particular in highly concentrated regional markets, which escaped regulatory scrutiny, among other things, because of the de minimis market exception. The FCO, therefore, lobbied successfully for a number of changes to the relevant rules in the course of the 10th amendment to the Act against Restraints of Competition (ARC), which entered into force in January 2021.

Obligation to file

Merger control filings are mandatory for concentrations meeting the jurisdictional thresholds. The parties concerned (usually the acquirers and the target) are responsible for filing. In the case of asset deals or acquisitions of at least 25 per cent or 50 per cent of the share capital or voting rights, the seller also has an obligation to notify. Separate filings are not required; normally the acquirer notifies on behalf of all parties concerned.

Section 41 of the ARC prohibits implementing transactions without the required merger control clearance. There is an exemption for public offers, provided the transaction is notified without undue delay, and the acquirer does not exercise its voting rights prior to clearance. Moreover, under exceptional circumstances the FCO may grant a dispensation from the suspensive effect.

The 10th amendment to the ARC abolished the long-standing obligation to inform the FCO about the implementation of a properly notified (and cleared) transaction.

Failure to notify: gun-jumping

Implementation acts that fall foul of section 41 ARC are deemed null and void under German law. The FCO can order the dissolution of implemented transactions if they result in a significant impediment of effective competition. It may also impose fines of up to 10 per cent of the infringing undertaking’s global turnover for a violation of section 41 of the ARC.

In more than 10 cases so far, the FCO has fined companies for implementing a notifiable transaction prior to clearance (gun-jumping). The highest fine was imposed on Mars Inc in 2008 and amounted to €4.5 million. In two judgments of November 2017 and July 2018 (Edeka/Kaisers Tengelmann I and II) the Federal Supreme Court held that any action (partly) pre-empting the intended implementation must be considered as gun-jumping. In this respect, German merger control is stricter than EU law.

In its Ernst & Young judgment of 31 May 2018, the European Court of Justice had limited the scope of the corresponding rules in the EU Merger Control Regulation to those implementing measures contributing directly to a change of control over the target company.

Once a transaction is implemented, it can no longer be subject to a regular merger control filing; instead, the parties can inform the FCO about the implementation (section 39(6) of the ARC). The FCO will then review the competitive effects of the implemented transaction in dissolution proceedings pursuant to section 41(1), No. 3 of the ARC. If the conditions for a prohibition are not met, the FCO will close the dissolution proceedings (which are not subject to specific review periods). As a consequence, implementation acts that were previously deemed null and void will become valid retroactively.

Definition of concentration

In section 37, the ARC defines four types of concentrations.

Acquisition of all or a substantial part of the assets of another undertaking

There used to be broad consensus that the acquisition of assets required the acquisition of ownership. However, in the Lufthansa/Air Berlin case (2017), the FCO took the position that ownership does not necessarily need to be transferred but that a long-term wet-lease agreement may be sufficient.

In the case at hand, the FCO ultimately left that question open. In any event, it is decisive that the transferred assets form the basis (or substrate) of an existing market position and allow the acquirer to take over that position from the seller.

Acquisition of direct or indirect control by one or more undertakings of the whole or a part of one or more other undertakings

The notion of control in German merger control is largely the same as under the EU rules. Control may be conferred by rights, contracts or any other means that, either separately or in combination and having regard to all factual and legal circumstances, confer the possibility of exercising decisive influence over the target, in particular through ownership or the right to use all or part of the assets of the undertaking, or rights or contracts that confer decisive influence on the composition, voting or decisions of the governing bodies of the target.

German law contains a presumption that a majority shareholder controls its subsidiary. However, control may also be conferred by minority shareholdings or even purely contractual links as long as they provide the long-term ability to exercise decisive influence (eg, because of low attendance at the annual shareholders’ meeting or because of contractual (veto) rights).
Acquisitions of sole or joint control (including changes from joint to sole control and vice versa) are covered, as are changes within a group of jointly controlling shareholders.

Acquisition of certain capital or voting rights

The acquisition of capital or voting rights that result in participations of at least 25 per cent or 50 per cent in the capital or voting rights of the target is also defined as a concentration by section 37 of the ARC. This category also covers transactions through which existing participations are increased to the extent that the relevant thresholds are exceeded.

If a transaction results in two or more undertakings holding stakes of at least 25 per cent in the target (joint venture), an additional concentration is deemed to arise between those undertakings (limited to the markets in which the joint venture is active). This has two consequences:

  • all shareholders holding at least 25 per cent of the joint venture qualify as ‘parties concerned’ so their turnovers must be taken into account when assessing the filing thresholds; and
  • the substantial assessment will comprise an analysis of overlaps between the parent companies’ activities in the joint venture’s markets.

Acquisition of a competitively significant influence

This concept is the least clear-cut and serves as a subsidiary threshold, which becomes relevant only if none of the other categories is applicable. A competitively significant influence must be based on a structural link, usually a shareholding of less than 25 per cent (even shareholdings below 10 per cent can be sufficient), and ‘plus factors’ allowing the acquirer some degree of influence that does not amount to control. Examples of plus factor are superior familiarity of the acquirer with the market or industry at issue and important business relations with the target and a seat on its decision-making bodies.

If, considering the circumstances of the specific case, it is expected that the majority shareholder will take the minority shareholder’s interests into consideration when determining the target’s business strategy, the FCO will usually assume significant influence. For this influence to be competitively relevant, there must be horizontal (or vertical) links between the acquirer and the target.

In Edeka/Budnikowsky (2017), the FCO made clear that the required structural link does not necessarily have to consist of a shareholding in the target; a common joint venture may suffice if the acquirer of competitively significant influence has a 25.1 per cent stake and the joint venture provides some crucial business functions for the target.

Turnover-related filing thresholds

Pursuant to section 35 of the ARC, concentrations that do not fall under the EU Merger Control Regulation are subject to German merger control if, during their last business year:

  • the parties concerned achieved an aggregate worldwide turn­over of more than €500 million;
  • one party concerned had a turnover in Germany in excess of €50 million; and
  • another party concerned generated a turnover of more than €17.5 million in Germany.

Through the 10th amendment to the ARC, the two thresholds relating to the parties’ turnover in Germany were significantly increased (up from €25 million and €5 million, respectively). As a consequence, the FCO expects the number of notifications to drop by as much as 35 to 40 per cent.

The ARC sets out a number of specific rules regarding the calculation of the relevant turnover. Of particular practical significance are the following aspects.

  1. For the purposes of turnover calculation, the ‘parties concerned’ are the acquirers and the target (ie, the assets to be purchased or the legal entity or entities to be acquired), including their controlled subsidiaries. The seller’s turnover is not taken into account unless the seller retains control or a stake of at least 25 per cent in the target.
  2. Intra-group sales, VAT and other taxes do not form part of the relevant turnover. Section 38 of the ARC contains specific rules for the turnover calculation in certain industries (trading of goods, broadcasting, press, financial institutions and insurance).
  3. With regard to the geographical allocation of turnover, the FCO follows the approach set out in the European Commission’s Consolidated Jurisdictional Notice and focuses on the location where competition with alternative suppliers takes place; thus, even if customers purchase via a central purchasing department outside Germany, turnover with goods and services delivered to German production sites will usually be considered turnover generated in Germany.
  4. As confirmed by the FCO in the Hytera Communications/Sepura case (2017), the relevant year for the purposes of turnover calculation must be determined by reference not to the date of the notification but rather to the envisioned implementation date.
  5. Joint ventures where only the parents trigger the thresholds may escape the filing obligation owing to a lack of domestic effects, in particular if the joint venture has no actual or potential activities in Germany (see the FCO’s guidance on domestic effects in merger control, which is available in English on the FCO’s website).
  6. Pursuant to section 38(5), sentence 3 of the ARC, several transactions are to be treated as one for the purposes of turnover calculation if they are carried out by the same parties within two years.

The provision in point (6) aims to counteract market concentrations through successive transactions, each of which, when viewed individually, remains below the FCO’s radar. Previously, its scope was confined to situations where the notification requirement was only fulfilled by the addition of the subsequent transactions. This opened the door for a notifiable transaction, which was not problematic from a competition perspective, to be implemented prior to a more difficult transaction, which then did not trigger a notification obligation. The 10th amendment to the ARC has eliminated the possibility of this circumvention; now such a case will also have to be assessed as one integrated and, thus, overall notifiable merger.

Filing threshold based on transaction value

Section 35(1a) of the ARC sets out an additional notification requirement based on the transaction value. It covers cases in which:

  • the aggregate global turnover of all undertakings concerned exceeded €500 million;
  • one undertaking concerned had a turnover of more than €50 million in Germany (increased from €25 million by the 10th amendment to the ARC);
  • the transaction value exceeds €400 million; and
  • the target has ‘significant operations’ in Germany.

This provision, which was introduced in 2017, aims at capturing the acquisition of targets with low turnover but considerable market potential (eg, internet start-ups). However, it still raises many questions concerning, in particular, the determination of the transaction value and the exact meaning of ‘significant operations’ of the target in Germany.

In this context, in July 2018, the FCO and the Austrian Federal Competition Authority published a joint guidance paper that focuses on those issues. With regard to the transaction value, the paper makes clear that it comprises not only cash payments, securities and tangible assets but also intangible assets (eg, licences or trademark rights) and even considerations that are contingent on certain conditions (eg, earn-out clauses), which may necessitate a present value calculation based on an appropriate discount rate.

The guidance paper clarifies that the FCO will not usually consider domestic operations to be significant if the target’s turnover remains below the relevant threshold of section 35(1), No. 2 of the ARC (after the 10th amendment, €17.5 million in Germany) and adequately reflects its market position and competitive potential.

Thus far, the number of deals filed under the transaction value threshold has not involved any competitively problematic cases.

Process and substantive issues

Review periods and timing considerations

There is no reporting deadline; however, implementation prior to clearance is prohibited. Filings can be made based on the parties’ (documented) good faith intention to carry out the transaction (eg, on the basis of a letter of intent).

Pre-notification contacts with the FCO are not mandatory but recommended in cases that could potentially give rise to competitive concerns or where timing is crucial. In particularly complex transactions, the FCO, upon receiving the necessary information upfront, may even provide the parties with a preliminary competitive assessment to allow them to assess the feasibility of their deal and, if needed, to amend their plans accordingly.

As of filing, the review periods are one month for Phase I and five months (increased by one month by the 10th amendment to the ARC) for a full investigation, including Phase II. The review period in Phase II can be extended with the parties’ consent and is automatically prolonged by an additional month if the parties offer remedies. The clock is stopped if the parties fail to respond fully and in a timely manner to a formal request for information.

Required information

The statutory requirements regarding information to be included in a German merger filing pursuant to section 39(3) of the ARC are moderate. In addition to certain mandatory information concerning the parties and the transaction, it is good practice also to describe the relevant markets and to provide market share estimates – even though the latter is only required for markets in which the parties achieve a combined share of at least 20 per cent.

The FCO is increasingly following the example of US and EU enforcers in asking for internal documents shedding light on the deal rationale and the parties’ internal assessment of the transaction’s effects on competition.

The parties are obliged to submit complete and accurate information. In several cases, the FCO has imposed fines of up to €90,000 for the submission of incorrect or incomplete information in merger notifications. In Bongrain Europe SAS (2016), the FCO found that the parties had only succeeded in obtaining merger clearance by submitting incorrect information and started dissolution proceedings, which were discontinued only upon divestiture of the shares in one of the companies concerned.

Substantive test

As at the EU level, the substantive test under the German merger control rules asks whether the notified transaction would lead to a significant impediment of effective competition. However, in practice, the FCO still focuses, at least in the first step, on the traditional dominance test and evaluates the creation or strengthening of a dominant position.

In this respect, it starts from the ARC’s rebuttable presumptions for single firm dominance (combined market share of at least 40 per cent (section 18(4) of the ARC)) and collective dominance (no more than three undertakings with a combined market share of at least 50 per cent (section 18(5) of the ARC) or no more than five under­takings with a combined share of two-thirds (section 18(6) of the ARC)).

If those thresholds are met, the assessment then shifts to a detailed analysis of the case-specific market structure characteristics, such as the number and strength of competitors, market entry barriers and the issue of counter­vailing buyer power. Only if no dominance is found does the FCO turn to assessing the possibility of a ‘gap case’, which may justify the prohibition of a transaction even in the absence of dominance. Throughout the process, third parties can make their views known at their own initiative or by responding to information requests by the FCO.

A particularity of German merger control is that notifiable transactions are not subject to a substantive review by the FCO as far as they relate to de minimis markets. Pursuant to section 36(1), No. 2 of the ARC, those are markets that have existed for at least five years and had a total sales volume of less than €20 million in Germany in the past calendar year. This exemption does not apply to cases caught by the threshold based on transaction value, which was explicitly introduced to protect competition on markets that are not (yet) characterised by significant revenues.

The 10th amendment to the ARC increased the market size threshold for de minimis markets from €15 million to €20 million. More importantly, the legislator also codified for the first time the FCO’s practice to bundle together different markets for the purposes of calculating the total sales volume.

The 10th amendment is supposed to create greater legal certainty in this area; however, the revised wording of section 36(1), No. 2 raises concerns as it does not set out any conditions to be fulfilled by the different markets so that they may be looked at together. While the FCO has generally required a ‘close relationship’ (eg, by means of a vertical link or geographical proximity), the new wording speaks simply about markets without any further qualification.

Based on recent experience, it seems that the FCO now considers itself entitled to combine any markets without the need to consider any further substantive criteria. It remains to be seen whether this worrisome interpretation will prevail. In any event, it is to be expected that it will become significantly harder for notifying parties to claim that the de minimis clause removes their case from the FCO’s scrutiny.


Unlike under EU law, remedies are only possible in Phase II proceedings in Germany because Phase I does not conclude with a formal decision that would allow the clearance to be made subject to conditions or obligations.

In 2017, the FCO published an extensive guidance paper summarising its (and the German courts’) decisional practice on remedies. Not surprisingly, the authority’s approach is, to a considerable and increasing extent, aligned with the approach of the European Commission; for instance, the FCO generally prefers divestiture commitments over behavioural remedies and stresses that the latter must not result in the need for long-term monitoring by the authority.

The FCO prefers conditions (eg, up-front buyer conditions), which must be fulfilled for the clearance decision to become effective, over obligations, which need to be complied with only after the implementation of the transaction and thus may not provide the parties with sufficient incentives for speedy implementation. If there are major uncertainties regarding the availability of a suitable buyer for a divestiture business, the FCO may also resort to fix-it-first solutions, by which the parties commit to implementing the divestiture during the review period.

The FCO is still reluctant to accept mix-and-match solutions, in which assets and personnel from different business divisions (and sometimes even from different parties) are bundled together in a divestiture package. However, its approach is highly case-specific; under certain circumstances, it may suffice to dispose of shareholdings in, or cut contractual links with, other companies to alleviate competitive concerns.

Model texts for the different types of commitments and a trustee mandate are available on the FCO’s website.

Legal recourse and ministerial approval

Prohibitions and (conditional) clearance decisions issued by the FCO following a Phase II investigation are subject to full judicial review by the Higher Regional Court of Düsseldorf. Judgments of that court can be appealed (on grounds of law) to the Federal Supreme Court. If third parties are able to demonstrate that the FCO’s decision directly and individually affects their competitive interests, they may also seek legal recourse against the FCO’s decision.

Upon application by the parties, the Federal Minister for Economic Affairs and Energy can approve a transaction that was prohibited by the FCO (section 42 of the ARC). The decision in respect of ministerial approval is subject to a six-month deadline. In his or her decision, the Minister has ample discretion to take economic and public interests into account, but the decision is subject to judicial review.

Thus far, there have been 23 applications for ministerial approval, 10 of which were successful (the last being the Miba/Zollern case, which was approved in August 2019). The instrument is highly controversial, and several changes to it were debated during the discussions on the 10th amendment to the ARC. In particular, it was suggested to add the requirement that the legal assessment by the FCO in its prohibition decision be confirmed by a court – at least in proceedings for interim relief – before ministerial approval can be granted, in order to prevent parties from using the referral to the Minister as a faster way to obtain the go-ahead for their transaction. However, in the end section 42 of the ARC remains unchanged.

Hot topics

Novel investigation instrument: notification order

Perhaps the most significant change to the German merger control regime brought about by the 10th amendment to the ARC concerns the introduction of a ‘notification order’ as a new investigation instrument. According to section 39a of the ARC, the FCO may issue an order requiring an undertaking to notify any concentration it intends to carry out in one or several specific economic sectors for an initial period of three years.

The issuance of the notification order is subject to restrictive requirements. For example, the order may be addressed only to a company with worldwide sales of more than €500 million. In addition, the company must have a share of at least 15 per cent of supply or demand in Germany in the industry concerned.

In this respect, no traditional market share analysis is required; instead, reference is made to all goods and services that are characteristic of the industry at issue. Furthermore, there must be objective indications that mergers involving the addressee could significantly impede effective competition.

The biggest hurdle is likely to be the requirement of a preceding sector inquiry. The legislator made it clear that, for reasons of legal certainty, only sector inquiries that were completed after the 10th amendment had entered into force can be considered. In addition, there must be a certain temporal proximity between the sector inquiry and a subsequent notification order.

If the FCO issues a notification order, it will generally cover all merger projects of the addressee in the sectors concerned. An exception applies if the target company has sales of less than €2 million or achieves more than one-third of its revenues outside Germany.

The FCO’s new tool is difficult to reconcile with the traditional system of German merger control, and it remains to be seen how relevant it will be in practice. Section 39a of the ARC is supposed, in particular, to capture cases in which an already powerful company gradually takes over small competitors, when a sector inquiry has brought up competition concerns or when mavericks in already concentrated markets are being acquired.

In the past, FCO representatives had repeatedly taken issue with the fact that many projects in the waste disposal industry were exempt from scrutiny. The authority expects that it will issue around three notification orders per year, which seems rather optimistic in view of the strict requirements.

Digital economy and platform markets

The digital economy and its effects on competition continue to be a clear priority in the FCO’s enforcement practice, and the ninth as well as the 10th amendment to the ARC have brought about important changes to the relevant legal framework, which have also an impact on the merger control regime.

The ninth amendment of 2017 clarified that a market, within the meaning of competition law, can exist even if services are provided free of charge. This is often the case, for example, for two-sided platforms. In 2015, the FCO defined relevant markets in two merger cases concerning online real estate platforms and online dating platforms, respectively, even though some of the users did not have to pay for the services at issue.

The ninth amendment also introduced additional criteria for determining the existence of a dominant position, which are particularly important for the assessment of digital platforms. The additional aspects include network effects (in particular resulting from the associated economies of scale), access to data, user behaviour (including the use of parallel platforms (multi-homing) and switching costs) and innovation-induced competitive pressure.

The criteria played an important part in the assessment of the planned acquisition of the concert and event agency Four Artists by CTS Eventim, which operates a multisided online ticketing platform. The FCO prohibited the merger in November 2017 as it found CTS Eventim to hold a dominant position in the market for ticketing services, which would have been further strengthened by the planned transaction.

With the 10th amendment, the catalogue of criteria for determining a dominant market position has been expanded further. Section 18(3), No. 3 of the ARC adds a point concerning access to data that are relevant for competition. Moreover, with regard to undertakings operating as intermediaries on multilateral markets, the importance of their intermediary services for the access to procurement and sales markets must be taken into account in assessing their market position (section 18(3b) of the ARC).

Significant strengthening of a dominant position?

In the CTS Eventim case, the Federal Supreme Court will soon have the opportunity to clarify whether the strengthening of a dominant position needs to be ‘significant’ to justify a prohibition decision. The issue has been the subject of controversy ever since the SIEC test was introduced into the ARC in 2013.

The FCO assumes that the creation or strengthening of a dominant position as such always amounts to a significant impediment of effective competition. Legal scholars, on the other hand, argue that the reference to a significant impediment implies that there must also be a significant strengthening of a dominant position.

More foreign direct investments subject to review

In December 2020, the government decided to prohibit the acquisition of IMST GmbH, a specialist in mobile communications, radar and satellite technology, by a Chinese defence contractor. This was only the second transaction to be blocked based on concerns over public order or security after a Chinese investor’s takeover of the machine tool manufacturer Leifeld Metal Spinning failed to pass scrutiny in 2018.

Examination under foreign trade law is increasing in importance across the European Union and particularly in Germany. Over the course of less than a year, the German rules on foreign investment control have undergone a series of far-reaching changes, which have fundamentally altered the role of foreign direct investment review for M&A transactions in Germany and led to a record number of deals being notified to the Ministry for Economic Affairs and Energy in 2020.

The 17th amendment to the Foreign Trade Ordinance, which entered into force at the end of April 2021, marks the final step in the current legislative overhaul. In April and October 2020, the Foreign Trade and Payments Act and the Foreign Trade Ordinance, pursuant to which the Ministry may examine (independently of the merger control proceedings under the ARC) acquisitions of at least 10 per cent of the shares in a domestic company by a non-EU investor in certain industries, were amended to reflect the EU Screening Regulation. This meant, in particular, a change of the substantive test from ‘actual and serious threat’ to any ‘likely adverse impact’ on public order, safety or security.

Moreover, in response to the covid-19 pandemic, various medical and personal protective equipment businesses were added to the list of critical infrastructure and technology businesses subject to cross-sectoral review in June 2020.

Finally, the 17th amendment again expanded the list of critical infrastructure and technology businesses by adding 15 types of businesses ranging from artificial intelligence to critical raw materials. In addition to this expansion, which largely goes back to the sectors mentioned in the EU Screening Regulation, the 17th amendment also extended the rules on the attribution of shareholdings and introduced the possibility of prohibiting transactions where factual influence vests with an investor (eg, through board seats or information rights), even in the absence of acquiring voting shares.

The expansion of foreign investment control goes back to a belief increasingly held in Berlin – and other EU capitals – that national governments must take a more proactive role in implementing domestic industrial policy objectives.

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